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Bill Moving Through Congress Could Lead To Spread Of Predatory Loans

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Consumer groups say predatory payday lenders would be able to flood the market with sky-high interest-rate loans - and get around state laws - if a bill is signed into law.

HR 3299, the so-called "Madden Fix," would reverse a court decision called Madden vs. Midland, which forbade banks from reselling loans to payday lenders if the loan's interest rate exceeded state limits. Rebecca Borne, senior policy counsel for the Center for Responsible Lending, said this bill would legalize what she called a "rent-a-bank" scheme. "It would permit non-bank predatory lenders to partner with banks, even superficial partnerships, to take advantage of banks' ability to pre-empt state law," she said. Sixteen states and the District of Columbia have laws that cap interest rates on short-term payday-type loans, and dozens more cap rates on longer-term loans.

Supporters of the bill say the current rules have hurt the loan resale market and ultimately limit consumers' access to credit. If this bill makes it past the House and Senate, Borne said, it stands a good chance of being signed into law because President Donald Trump's pick to lead the Consumer Finance Protection Bureau, Mick Mulvaney, has said he wants his agency to re-evaluate the payday lending rule finalized under the prior director, who was appointed by President Barack Obama. "And so really," she said, "every signal that they're sending is saying that they want to give payday lenders a free pass."

Borne said the CFPB also recently dropped a case against an internet payday lender that was charging more than 900 percent interest. In addition, the president's new budget proposal would put the agency's appropriations under congressional control, which would allow lawmakers to gut the CFP-B. States with usury laws on short-term loans include Arizona, Montana, South Dakota, Arkansas, Georgia, North Carolina, West Virginia, Maryland, Pennsylvania, New Jersey, Connecticut, Massachusetts, New York, Vermont and New Hampshire. Details of HR 3299 are online at financialservices.house.gov.